Inflation allowance 
This coverage protects you against inflation by automatically increasing your amounts of insurance during the term of your policy, without increasing your premium.  On renewal, the insurance company will automatically adjust your amounts of insurance to reflect the annual inflation rate.  The premium you pay for your renewal will be based on those adjusted amounts of insurance.

Inflation allowance coverage will not fully protect you if you make an addition your building or if you acquire additional personal property.  This is why you would review your amounts of insurance every year to make sure that they are adequate.

Special limits of insurance
The contents of your dwelling are referred to as “Personal Property.”  Some types of personal property insurance such as jewellery, furs and money have “Special Limits of Insurance.”  This is the maximum the insurer will pay for those types of property.  If these limits are not sufficient for your needs, you can purchase additional insurance.

Your policy automatically includes some additional coverage to provide you with more complete protection.  Each of the individual types of coverage that are included is listed under the heading “Additional Coverage.”

Insured perils
A peril is something negative that can happen, such as a fire or theft.  Some policies protect you against only those perils that are listed in your policy.  Other policies protect you against “all risks” (risk is another word for peril).  This means you are protected against most perils.

All insurance policies have exclusions.  Even if you have selected “all risks” coverage, this does not mean that “everything” is covered.  It is important that you read the exclusions carefully in order to understand the types of losses that are not covered by your policy.  For example, floods, earthquakes, etc. may not be covered if you reside in a high-risk location for these types of perils.

Loss or damage not insured
This is the “fine print” – the section that tells you what is not covered.  They are also known as “exclusions.”  Exclusions are necessary to make sure that the insurance company does not pay for the types of losses that are inevitable (ie. wear and tear) uninsurable (ie. war) or for which other specific policy forms are available to provide coverage (ie. automobiles).

Basis of claim settlement
This section describes how the insurer will settle your loss.  It’s the real test of the value of your policy and the reason why you purchased insurance.

Replacement cost
You should purchase replacement cost coverage for your property.  This is particularly important for your personal property (e.g. the contents of your dwelling and personal effects).  Otherwise the basis of settlement will be “actual cash value” which means that depreciation is applied to the damaged property when establishing the values.  You therefore would get less money, possibly considerably less.

“New for old” coverage is available.  All you have to do is ask for “replacement cost coverage” and then make sure that your amounts of insurance are sufficient to replace your property at today’s prices.
Guaranteed replacement cost.

This is one of the most important types of coverage available to a homeowner.  You can qualify for this coverage by insuring your home to 100 percent of its full replacement value.  If you do, then the insurance company will pay the full claim, even if it is more than the amount of insurance on the building.  Make sure this is shown on your policy.
The Guaranteed Replacement Cost coverage applies only to your building – not your personal property.

There is usually an important exclusion.  Many insurance companies won’t pay more than the amount of insurance if the reason the claim exceeds that amount is the result of any law regulating the construction of buildings.  Check this out.

Deductible
There is a deductible and the amount is shown on the Coverage Summary Page of your policy.  It means that you pay that amount for most claims, for example $250 or $500.  The insurance company pays the rest.

As you can imagine, the cost to investigate and settle a claim can be considerable, often out of proportion when the size of the claim is relatively small.  These expenses are reflected in the premiums you pay.  By using deductibles to eliminate small claims, the insurance company can save on expenses and therefore offer insurance at lower premiums.

Conditions
This is a very important part of your policy.  It sets out the mutual rights and obligations of the insurer and the insured.  This section governs how and when a policy may be cancelled, as well as your obligations after a loss has occurred.

Purchasing adequate amounts of insurance
Purchasing adequate amounts of insurance that reflect the full replacement value of everything you own is without a doubt the single most important thing you can do to protect yourself.  The risk is that insurance companies will not pay more than the amounts of insurance you have purchased.  So it is up to you to make sure the coverage is adequate and realistic.  Review it annually.

The condo corporation will have insurance to cover the whole condo development from a fire up to a certain amount. Obtain a copy of the insurance coverage and review the maximum amount. Your own home insurance will cover any damages to your internal unit. However, you want to obtain insurance coverage on your own condo insurance policy that will cover any shortfall under the condo corporation insurance coverage, in the event of catastrophic damage to the condo development by fire, etc. Speak to a professional insurance broker.  Make sure you obtain a minimum of three competitive insurance quotes to make sure you are getting the coverage you need and want, and at a fair premium.

If you put an addition onto the condo or carry out major renovations, with the prior approval of the condo corporation in writing, you should recalculate the replacement value, as your current amount of insurance doesn’t take this into consideration.  Notify your insurance company representative.  The Inflation Allowance feature of your policy does protect you against normal inflation, but is not sufficient to cover major changes.

Contents coverage
If you are using the home personally, the following discussion relates to personal use.  Your policy provides coverage for your contents.  You should make sure that this amount is enough to replace all your possessions at today’s prices.  If the home is rented to a tenant, they are responsible to obtain tenants insurance.  You should make that a condition of any rental agreement.

If you have a claim, the insurance company will ask you to compile a complete list of everything that you have lost.  Ideally, you should maintain an inventory of everything, furniture, appliances, clothes and other possessions.  Estimating what it would cost you to replace them is a good way to check if your amount of insurance is enough.

At the very least you should keep the receipts for all major purchases in a safe place. Another good idea is to take pictures of your contents, or make a video of everything by walking from room to room.  In addition, most insurance companies will provide you with a checklist, so you can compile a list of your contents.  This may seem like a chore right now, but it can really save time and aggravation if you do have a claim.

As you could lose your inventory or photographic evidence in a major loss, you should store your records away from your home.  The best place is a safety deposit box.  Whatever method you use, remember that you should update it periodically, ideally annually, to make sure that it remains accurate.   CL

Excerpted with modification, from 101 Streetsmart Condo Buying Tips for Canadians, by Douglas Gray, to be published by John Wiley & Sons in May, 2006. Copyright  2006 by Douglas Gray. All rights reserved. Any reproduction of this material without the author’s advance written consent is prohibited. The author assumes no responsibility whatsoever for any information provided above, as the purpose of the column is for general information only, and not intended to provide professional advice.
If required, independent expert advice should be sought customized to the reader’s own needs.

Douglas Gray, LL.B., is formerly a practicing lawyer in Vancouver, B.C., who morphed into a consultant, speaker, columnist, and author of 22 bestselling books, including the recently released Canadian bestseller, Making Money in Real Estate (The Canadian Guide to Profitable Investment in Residential Property), 2nd edition.  In his real estate legal practice, he has advised condo buyers and sellers, condo corporations, lenders, borrowers, investors and developers. He has also been a real estate investor for 35 years.His website is: http://www.homebuyer.ca.